In the last decade, there has been a drastic change in the hiring process employed by businesses. Owing to the circumstances and changing scenarios, more individuals are opting for the freelancing way to work. Businesses are happy with hiring these professional freelancers on contract. Instead of a periodic salary to be paid to an employee, they find the idea of an hourly fee or project payment much profitable. No overheads like medical benefits and paid leaves are like the cherry on the cake.

Though hiring freelancers is advantageous, businesses must also look at the legal aspects of contracted work. It is good to look at all the important considerations before hiring a freelancer. This will go a long way in eliminating any legal complications that may arise in the future and reduce liabilities.

Important considerations when hiring Freelancers

Often, businesses fail to look at all the legal aspects before hiring a freelancer. This leads to unpleasant situations in case of disputes. Here we will endeavor to look at some factors to consider and implement before hiring any freelancer.

1. Work for Hire Agreement

In most nations, the legal system defines the creator of the work as the copyright holder. For businesses, this can lead to tight situations if a freelancer claims his legal right to the work he has done. Therefore, the business must enter into a Work for Hire Agreement with the freelancer. With this agreement in place, the business is considered to be the copyright holder. This is because the work done under such an agreement is considered as work for hire or work done on behalf of the business. It is crucial to get into a signed agreement with the freelancer. This agreement may vary from country to country. However, it is good to include points like the nature of work, terms of execution, and payment terms in the Work for Hire Agreement.

2. Documenting payment terms

It is easy to think that a freelancer can be denied payment for the services rendered. However, this is the worst course of action a business can take. Every country offers strong legal protection to someone who has worked, even if it is a freelancer. The business indulging in such malpractices may be dragged to court. This would not only mean clearing owed payments to the freelancer but also court fees. Additionally, a court case will also damage the reputation of the business and its credit ratings leading to long-term implications.

All these legal implications can be avoided by documenting detailed payment terms. The payment terms must include these points.

∙ The rate of payment must mention the exact amount. It is also necessary to include the periodicity like hourly payment or payment on completion of stages.

∙ Invoicing must be done by the freelancer to receive payment. This point must include a point about when the invoicing must be done.

∙ Payment schedules must be agreed upon and documented.

∙ Payment terms must include taxation whenever applicable.

3. Maintaining proper classification

Businesses may be tempted to make freelancer arrangements for tax avoidance. They may try to classify an employee as a contractor to provide benefits and avoid tax liabilities. On the other hand, businesses may give titles and business cards to freelancers. This is misleading as it gives the idea that the contractor is legally employed with the business. These can be legally termed misclassification. The business may be charged with malpractice. A business must follow all the laws regarding employees. Likewise, a business is expected to have proper contracts and agreements with freelancers. Freelancers can choose their working hours as compared to fixed working hours for employees. They are free to work from their home or office. The timeframes must be defined in the contract and must be adhered to by the freelancer.

4. Manage freelancers on a separate system

Freelancers must never be managed on the same systems as full-time employees. The software and platform for managing employees must be distinct from one that manages freelancers. This bifurcation helps to keep intermingling management. This also avoids any risk of violating any laws.

5. Maintain complete documentation

Before hiring a freelancer, it is essential for any business to clearly outline all the work requirements. This must be done right at the start to avoid all confusion later. It does not matter if it is just a small job work or a project that involves a long period of months or even years. Each minute aspect of the contracted work must be mentioned in the form of clear points. These must be included in a document as terms of the contract. The document must state the start time, the fulfillment time, the quality aspects of the work, and payment terms. The document should also include terms of termination in case, the freelancer is not able to fulfill any point in the terms of the contract. It is a good practice to have this document signed by the freelancer as an agreement to the terms of the contract.  

6. Compliance with workplace laws

A freelancer may need to interact with the employees of the business. During these interactions, there is a possibility of non-compliance like sexual harassment or discrimination based on race, color, ethnicity, etc. This can cause major legal implications. Both employees as well as freelancers must be fully trained on these laws and an agreement to abide by them must be signed.

7. Compliance with Tax Laws

Many businesses may hire freelance professionals with the wrong intention of tax evasion. Before hiring a freelancer, it is essential that the business consult accountants and tax professionals regarding the current tax laws of the country. Businesses must make sure to send the stipulated tax forms to the freelancers so they can pay their taxes easily. All payments made to freelancers must be accounted and disclosed to the tax department. Businesses will do well to abide by these laws and avoid and summons from the Revenue Department later.

8. Check if the freelancer is incorporated

It is preferable to work with an incorporated freelancer than a solo professional or sole proprietor. An incorporated freelancer will have a business model they work with. This means that they are a legal entity and are aware of all the legal and tax implications. They also have a structured system of working. Any issues can also be resolved effectively. It must also be kept in mind that this is good for long-term projects. Solo freelancers may be more suited for short projects.

9. Consult with Accounting and Legal Teams

All the above points are general guidelines to keep businesses from faltering on legal aspects. However, it is advisable to consult the accounting teams and legal teams before getting into a contract with the freelancer. A practicing accountant will be able to highlight accounting and taxation aspects that can be incorporated into the agreements. Likewise, the legal team will be able to incorporate points that will improve your business’s compliance with the law. Small businesses that do not have an accounting and legal teams may hire consultants for the purpose.

Nailing Legal Agreements

The company needs to nail the right agreements with freelancers so that they are engaged aligned with workplace laws that are applicable to freelancers. They need to get freelancers to sign the documents that are applicable to both the company and the freelancer in question, and involve disclosure of information, no simultaneous employment with competitors, and compliance with country and international laws related to work engagements.

1. Non-disclosure Agreement

One of the drawbacks of hiring a freelancer is providing access to sensitive business information to them. This means disclosing information about the products or services, market and customer information, marketing strategies, business practices, and information about partners. Freelancers often work with multiple clients. There is a risk of sharing sensitive information with competitors. Having a freelancer sign a non-disclosure agreement eliminates this risk. Once a freelancer signs this agreement, he is legally bound not to disclose any business information to anyone without the written consent of the business. In case of any leaks, the business can pursue legal action against the freelancer.

2. Exclusivity Agreement

If a business wants to prevent a freelancer to work with a competitor, an Exclusivity Agreement can be signed with the freelancer. An advantage of such an agreement is the prevention of leakage of sensitive information. It also prevents any skills developed by the freelancer during the contract period to be used for the benefit of competitors. It also helps get undivided focus from the freelancer on the project at hand. On the other hand, the freelancer may charge a higher than usual fee. The fee must be discussed with the freelancer and included in the payment terms.

3. Compliance Agreement

Businesses are governed by national and international laws. It is legally binding for every business to abide by these laws. Non-compliance can mean losses in the form of hefty fees, imprisonment, action against the business, etc. While businesses make sure that compliance is adhered to internally by employees, many fail to make freelancers comply with the laws. A compliance agreement must be signed with the freelancer to ensure compliance. This must include all the laws that the business must abide by.

Conclusion

Working with freelancers provides a host of advantages and benefits to a business. It frees the business from a lot of employment laws that need to be adhered to. It also gives freedom from overheads. However, a business needs to consider all the legal aspects of hiring freelancers. It is vital to avoid all the legal risks involved by following simple guidelines.